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    Client Advisory: Investment Funds May Face New Reporting Obligations for Cross-Border Debt or Short-Term Equity Holdings

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    The U.S. Department of the Treasury recently expanded to investment funds the requirement to report certain cross-border claims, liabilities or short-term securities holdings on Treasury International Capital Form B (“Form B Reports”). “Investment Funds” include private equity funds, hedge funds, and other similar pooled investment vehicles. This new reporting obligation is effective for the period ended December 31, 2013.

    Form B Reports require general disclosure on a monthly or quarterly basis of current “reportable claims” and “reportable liabilities” that are: (i) owed by a U.S. resident entity to a non-U.S. resident entity (or vice versa), and (ii) exceed certain thresholds, as detailed in the chart below. Filings are typically made at the adviser level, and an adviser will consolidate and report on behalf of all U.S. entities it manages.

    “Reportable claims” include:

    • loans and loan participations of any maturity
    • short-term negotiable and non-negotiable securities (with an original maturity of one year or less), such as bridge loans
    • money market instruments (with an original maturity of one year or less)
    • deposit balances due from banks in any maturity (including non-negotiable CDs)
    • negotiable certificates of deposit of any maturity
    • reinsurance recoverables
    • accrued interest receivables
    • resale agreements and similar financing agreements
    • brokerage balances

    “Reportable claims” exclude long-term securities (including feeder fund interests and securities with no contractual maturity or a maturity of over one year), credit commitments, contingent liabilities, derivatives, spot foreign exchange contracts, precious metals and securities borrowing agreements.

    “Reportable liabilities” include:

    • loans of any maturity
    • short-term non-negotiable securities (with an original maturity of one year or less), such as bridge loans
    • non-negotiable deposits of any maturity (including non-negotiable CDs)
    • repurchase agreements and similar financing agreements
    • brokerage balances
    • accrued interest payables
    • insurance technical reserves

    “Reportable liabilities” exclude long-term securities (including feeder fund interests and securities with no contractual maturity or a maturity of over one year), negotiable certificates of deposit, negotiable short-term securities, contingent liabilities, derivatives, spot foreign exchange contracts, precious metals and securities lending agreements.

    For example, a U.S. private equity fund could trigger an obligation to file a Form B Report by various actions, including, without limitation, (1) directly investing in non-U.S. debt instruments, (2) extending credit to non-U.S. entities, (3) directly holding non-U.S. short-term securities, or (4) maintaining credit facilities with non-U.S. financial institutions.

    The chart below details the reporting thresholds and due dates for certain Form B Reports that may be applicable to Investment Funds:

    FORM TYPE; DESCRIPTION

    REPORTING LEVEL

    REPORTING FREQUENCY;
    DUE DATE

    Aggregate Threshold
    Across All Non-U.S. Countries

    Individual
    Country
    Threshold

    Form BC;
    Report of U.S. Dollar Claims of Investment Funds on Foreign Residents

    $50 million

    $25 million

    Monthly;
    Due no later than the 15th day of each month

    Form BL-1;
    Report of U.S. Dollar Liabilities of Investment Funds to Foreign Residents 

     $50 million

     $25 million

    Monthly;
    Due no later than the 15th day of each month

    Form BQ-2 (Part 1);
    Report of Foreign Currency Liabilities and Claims of Investment Funds with Foreign Residents  

     $50 million

     $25 million

    Quarterly;
    Due no later than
    the 20th day following the end of each calendar quarter 

    Form BQ-3;
    Report of Maturities of Selected Liabilities and Claims of Investment Funds with Foreign Residents  

    $4 billion total

    No individual
    country limit

    Quarterly;
    Due no later than
    the 20th day following the end of each
    calendar quarter

     

    Form B Reports are not publicly available and are filed with the Federal Reserve Bank of New York via its online Reporting Central System or by paper filing submission. Failure to report can result in a civil penalty of not less than $2,500 and not more than $25,000. Willful failure to report can also result in criminal prosecution. Any Investment Fund with “reportable claims” or “reportable liabilities” exceeding the monetary thresholds described above that are required to file for a particular reporting period are also required to file for all subsequent reporting periods in the year, regardless of whether the monetary thresholds are exceeded in the subsequent periods.

    Detailed instructions for the Form B Reports can be found at http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/forms-b.aspx.  

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